Video: Intel, startup face off in patent debate

SANTA CLARA, Calif.  Intel Corp.'s chief patent counsel and serial entrepreneur Steve Perlman faced off in a debate on patent reform Wednesday (May 6) hosted by the Commonwealth Club of California. The debate, moderated by Don Clark of the Wall Street Journal, threw a light on the wide gap between the opinions of big corporations and startups over pending legislation.

A Congressional committee sent a patent reform bill to the Senate floor for debate in early April. The House held a hearing on a companion bill in late April.

David Simon of Intel said the bills now before Congress try to address three outstanding problems that dog the giant chip maker and many of its partners—how patent infringement damages are calculated, how venues are chosen for the cases and provisions against willful infringement that mean engineers are often told not to read patents at all.

Steve Perlman, chief executive of startup incubator Rearden who holds more than 80 patents, said the current bills undermine the patent system without addressing its chief problem—an overwhelmed patent office.

"Getting the patent system to have adequate funding, getting it on its feet from its catatonic state is overarchingly huge and the patent reform bills in Congress do nothing for that issue," Perlman said. "This act is corrupt, it's junk and based on false information," he said.

Ronald Yin, a partner with DLA Piper (East Palo Alto, Calif.) took a middle position. "The system needs to be fixed, but I don't think it's in as dire straits" as some suggest, said Yin.

Most of the problems with the patent system "can be fixed by a [patent office] director who knows how to manage an agency, it doesn't need Congressional action," he said. "The proposals before Congress make incremental improvements and should not be labeled reform," he added.

Much of the debate focused on the issue of how infringement damages are calculated and the proposal from high tech companies to use a so-called apportionment method. In the following video, Simon explains apportionment and the rationale behind it. Perlman then attacks the concept, pointing out flaws in a Congressional research report on the topic he claimed was biased.

In a second part of the debate, Yin said the electronics industry has brought most of the problem on itself. He traced the issue back to a decision by Texas Instruments to sue Japanese DRAM makers for royalties at levels approaching ten percent, opening the door to electronics companies using patent portfolios as a source of revenue.

In the video, Simon said he estimates as much as $3.5 billion has been pooled by various organizations to buy patents "and I know of more money coming in." He also noted an attempt by at least one Wall Street company to create a derivatives market based on patents.

The trio also discussed the bill's attempt to change the U.S. from a first-to-invent to a first-to-file system.

All sides agreed that it is impossible to tell whether Congress will be able to pass patent reform based on the current bills in the House and Senate. "It has the best chance it has ever had," said Yin, but political issues such as the need to appoint a new Supreme Court justice may derail the effort.

Ron Wilson, Executive Editor of EDN, was also at the debate and filed a good report here: http://www.edn.com/article/CA6656862.html One note, Intel's Simon estimated the market for buying patents at $3.5 billion (not $35 billion), and I would point out that startups such as Transmeta have already used patents as an exit strategy.